The top 10 child welfare providers made more than £300m in profit last year, according to a study that will raise concerns about profiteering by private providers.
As pressure mounts within government, regulators, councils and carers to provide care for the country’s most vulnerable children, the observer shows the growing role of private equity firms in many of the largest providers of nursing homes and care places.
The profits of the top 20 providers of nursing homes and care places are now 20% of their income. Despite last year’s pandemic, their overall profits grew more than 14% from 2020, according to the study commissioned by the Local Government Association (LGA).
The findings follow a series of warnings that the marketing of child social care leads to some harmful consequences. Several figures within the sector have reported that children are placed away from their support networks where houses could be built more cheaply, or placed with families who lack the skills to provide proper care.
It comes months after a highly critical Competition and Markets Authority (CMA) warned that Britain was “sleepwalking” into a dysfunctional child welfare market, with local authorities struggling to pay for expensive places that often don’t meet the needs of the child.
An official review of child welfare in England has been commissioned by the government and will report later this spring.
It is hoped that the review will support reforms in England as a result of a growing consensus about the problems within the current system. City councilors have reported that housing placement spending has increased by 84% since 2015 and that they are now diverting funds from areas such as early childhood education for families to meet rising costs.
The LGA’s analysis, compiled by Revolution Consulting, found that eight of the top 10 child welfare providers, which include foster families, children’s homes and other services such as residential accommodation, now have some form of private equity exposure. Total revenue from the top 20 was more than £1.6bn, with 60% coming from the top four providers – Outcomes First, CareTech, Polaris and Priory, now called Aspris.
It also confirms many of the concerns about the levels of indebtedness of some groups, which many council members say makes childcare even more precarious. Nine of the top 20 providers had more debt and liabilities than property, plant and equipment.
“What is most important for children who cannot live at home is that they feel safe, loved and supported in a home that best meets their needs,” said Lucy Nethsingha, vice chair of the Children’s and Youth Committee of the LGA.
“While many providers are working hard to ensure that this is the case, it is wrong that some providers are making excessive profits from providing these homes when money should be spent on children.
“Even though budgets for their children’s welfare are increasing, most municipalities overspend each year as costs continue to rise. Yet the largest privately held companies, which provide many residential and foster homes for children, continue to make huge profits. At the same time, many are heavily indebted.
“Stability for children in care is paramount if we are to help them thrive. It is therefore critical that the financial health of these vendors is monitored to catch vendors before they fall and to ensure business changes do not jeopardize the quality of delivery.”
Outcomes First, CareTech, Polaris and Aspris were all contacted for comment but either declined or did not respond.
Some recent cases have highlighted some of the long-standing problems in childcare. In January Ofsted inspectors revoked the license of a children’s home in Bolton after finding a boy had not been bathed, changed or provided with a home-cooked meal for four months.